Privatizing the Social Security Trust Fund? Don’t Let the Government Invest

Link: https://www.cato.org/sites/cato.org/files/pubs/pdf/ssp6.pdf

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Given Social Security’s dire financial condition, there is growing interest in attempting to harness the power of private capital markets to bail out the faltering system. However, despite its surface attractiveness, allowing the government to invest funds from the Social Security trust fund in private capital markets would be a terrible mistake that would have severe consequences for the U.S. economy.

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Allowing the government to invest the trust fund in private capital markets would amount to the “socialization” of a large portion of the U.S. economy. The federal government would become the nation’s largest shareholder, with a controlling interest in nearly every American company. Government ownership brings with it serious problems of government control and is a threat to the efficiency and competitiveness of the U.S. economy.


Moreover, experience in other countries has shown that government investments seldom achieve the rates of return
seen in private investment. Attempts by the government to manipulate the markets could further undermine returns and threaten general market stability.

Author(s): Krzysztof M. Ostaszewski

Publication Date: 14 January 1997

Publication Site: Cato Institute

More Federal Aid to States Not Needed

Link: https://www.cato.org/blog/more-federal-aid-states-not-needed

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Spending advocacy groups are still claiming that state and local budget “shortfalls” are hundreds of billions of dollars. It is true that tax revenue growth in 2020 was slower than projected before the pandemic, but that is only a “shortfall” if you assume that budgets must always grow at the strong pre‐​pandemic rates. Yet states should know that booms do not last forever. If revenues are growing slower, then states should slow spending growth to match.

Perhaps tax revenues will fall in 2021, as they did in 2009. But that seems unlikely. CBO projected yesterday that real GDP will rise a strong 4.6 percent in calendar 2021. Private forecasters are also projecting solid growth. As incomes rise, state tax revenues should grow. Meanwhile, local governments are gaining from rising house prices because property taxes account for 70 percent of local tax revenues. U.S. house prices in the fourth quarter were up 14.9 percent on the year and are expected to remain strong in 2021.

Author(s): Chris Edwards

Publication Date: 12 February 2021

Publication Site: Cato Institute